Lots of tax changes

New laws, extenders and further implementation of the tax reform act -- never has it been a more important time to choose an Enrolled Agent to prepare your tax returns or help resolve tax problems

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What is an Enrolled Agent?

Enrolled Agents are the only nationally licensed tax professionals, authorized to represent taxpayers with the IRS anywhere in the country. Enrolled Agents specialize in taxes, so they truly are America's Tax Experts®

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Tax Headlines

Tax Highlights for 2020 tax year

2020 had a number of tax law changes (and there may be more to come) . Highlights include:

Special $300 tax deduction for charitable contributions

Individuals who take the standard deduction may claim up to $300 for charitable cash contributions made in 2020 or 2021. Normally, taxpayers who use the standard deduction cannot claim a deduction for their charitable contributions.

Contributions that qualify for Arizona credits cannot be counted for the $300 federal deduction.

For those who do itemize, the income limits for charitable contributions are suspended for 2020. The maximum deduction for donations normally is from 20% to 60% of the taxpayer’s adjusted gross income (AGI), but has been raised to 100% of AGI for 2020.

And don’t forget the dollar-for-dollar Arizona tax credit charities. For most, you can donate up to Apr. 15 and deduct on last year’s return. Find out more at https://davis-tax.com/azcredits.php

No RMD’s required

If you have a tax-sheltered retirement plan (traditional IRA or 401k) that has required minimum distributions (RMD’s), two changes this year will benefit you.

First, for people who haven’t started taking RMD’s yet, the age to begin has moved back for 70½ to 72. (A bill proposed in Congress would raise the age even further, to 75.) Taxpayers who don’t need to rely on that income can let it build up a bit longer.

Secondly, the requirement to take minimum distributions has been suspended for 2020, also allowing funds to grow if not needed now. Of course, you can always withdraw money as you need it, RMD’s or not.

Maximum age for traditional IRA contributions

The SECURE Act removed the maximum age for contributing to traditional Individual Retirement Accounts. In the past, contributions could only be made until age 70½. Now, anyone who is working (has “earned income”) may contribute to an IRA regardless of age.

New Form 1099-NEC

If you have gotten a 1099-MISC form for self-employment income (independent contractor), you’ll see a new form this year the 1099-NEC. It should be in your hands and to the IRS by Jan. 31.

The 1099-NEC reports only nonemployee compensation, what had been in Box 7 of the 1099-MISC. The 1099-MISC will still be used to report rents, direct sales and other income.

If you need to prepare 1099-NEC’s for your business (payments over $600), I can handle that for you.

IRS cuts mileage rates for 2021

For 2021, the IRS has reduced the standard mileage rate for business purposes by 1½¢ to 56¢ per mile. Driving for medical care is 16¢ per mile, down a penny from the 2020 rate.

The rate for driving for charitable service stays at 14¢. Moving expenses are no longer deductible, except for active duty military changing posts.

EIP’s

Those $1,200 Economic Impact Payments (EIP) sent out last spring and summer as well as the $600 EIP’s issued in January 2021 — they are not taxable. If you didn’t receive one, you may be able to claim it on your 2020 tax return.

Expired provisions

A number of tax provisions expired at the end of 2020 and Congress has not yet been extended them. Some key ones:

  • Mortgage insurance premiums deduction
  • Tuition and fees deduction for college (permanently eliminated in the Dec. 27 law)

The Consolidated Appropriations Act 2021, signed into law Dec. 27, extended numerous expiring provisions including:

  • Medical expense deduction threshold permanently reduced to 7½% from 10%
  • Exclusion from gross income for discharge of debt income from qualified principal residence debt (“home foreclosure forgiveness”) extended for five years, 20121-2025.
  • Residential energy-efficient property credit and solar tax credit were extended for two years.

IRS Coronavirus news: In addition to https://www.irs.gov/coronavirus, IRS has set up a separate page for the flood of coronavirus-related news releases: https://www.irs.gov/coronavirus/coronavirus-and-economic-impact-payments-resources-and-guidance.

SECURE changes retirement options

The SECURE law presents 29 new provisions for retirement accounts. Among the highlights:
• Removes the age 70½ limitation for contributing to an Individual Retirement Account (IRA).
• Moves the age for starting Required Minimum Distributions (RMD’s) from 70½ to 72.
• Requires inherited IRA beneficiaries to take all of the funds within 10 years.
• Creates a tax credit of $500 to help smaller employers which automatically enroll workers in their retirement plan.
• Eases the process for small employers to take part in multi-company (pooled) retirement plans.
• Allows annuities to be offered within retirement plans.
• Waives early-withdrawal penalties for childbirth or adoption.